By: Lime Green Giraffe Social Media Manager, Cameryn P.
Where does the 30-cent tax on your “Takis” go when you buy them at the store? What about the $5 tax on the Jordan Obsidian 1’s? We all know that these government mandated taxes are used as funds for income to a multitude of jobs including teaching, construction, and more. But where does it really go?
Government expenditures are when the government spends money towards the supply of goods and services that are not provided by the private sector but are important for the nation’s welfare. Government spending goes to various programs and services including healthcare, social security, agriculture, and most abundant, military.
Important Terms
Private Sector: the part of the national economy that is not under direct government control
Fiscal Policy: The means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.
Congressional Budget Office or CBO: Helps Congress make effective budget and economic policies.
Gross Domestic Product: Total value of goods and services produced in a country
Government spending is important as it has a profound role on economic activity. These expenditures affect the rate of growth of private sectors and businesses. In developed economies, it controls a significant part of economic activity.
During this fiscal year from October 1st, 2019-September 30th, 2020, the revenue of the U.S. was expected to be $4.79 trillion. But with a deficit of $1.083 trillion, the revenue was approximately $3.706 trillion. Of this $3.706, 49% is income tax ($1.8 trillion), 35% is payroll tax ($1.3 trillion), and 7% of corporate tax ($265 billion).
Types of Government Spending
Mandatory spending is spending that Congress legislates through annual appropriation process. Essentially spending that is mandated by the government through permanent law. Many programs that provide individuals with benefits are categorized as mandatory spending. This includes social security, Medicare, and Medicaid. Many mandatory spending programs are called “entitlements” because those who meet a certain standard are eligible for what those spending programs provide.
Social Security provides payments to retired and disabled workers, as well as to their spouses, dependent children and survivors.
Major Health Programs refers to four programs: Medicare (for seniors and disabled people); Medicaid (for low-income people); health insurance subsidies and related programs (for low- and moderate-income people); and the Children’s Health Insurance Program (for low-income children and parents).
Income Security Programs make payments to individuals based on their income through programs such as: earned income, child, and other tax credits (refundable tax credits for the working poor); the Supplemental Nutritional Assistance Program (formerly known as food stamps); Supplemental Security Income (payments to disabled children and adults with limited incomes); unemployment compensation (time-limited payments for people who become unemployed); family support and foster care; and child nutrition.
Federal Retirement Programs for federal civilian and military retirees.
Veterans’ Programs that provide pensions, income support, and other benefits for veterans.
The Legislative Branch does not provide specific funding levels for mandatory spending. The amount of spending for mandatory programs is based upon how many are eligible for those benefits and type and level of benefits each person can receive. Despite this, lawmakers can still adjust the amount of spending but unless Congress or the President take no action, the spending flow will be the same.
Discretionary spending is nonessential spending or, in other words, wants rather than needs. This means a business or household is still able to run even if all discretionary consumer spending stops.
This includes defense, transportation, health, education. International affairs, and more.
During many economic eras in U.S. history, most of federal spending was discretionary. Into the 1960’s, two-thirds of federal spending went to discretionary programs but of today, only one-third does. Over the next decade, it would fall to about one-fourth of total spending and will depreciate more throughout time.
The last category is net interest. This is the amount of interest, or money the government spends on national debt. The Congressional Budget Office or CBO expects a net interest growth from 1.8% of GDP from 2019 to 2.6% in 2030 and will total 5.7% in 2049. This category is the fastest growing program in the federal budget.
Defense budget
The U.S. spends more on national debt than China, India, Russia, Saudi Arabia, France, Germany, United Kingdom, Japan, South Korea, and Brazil combined. Defense accounts for 15% of all federal spending but approximately half of discretionary spending.
Healthcare
The U.S. healthcare spending is on the rise. The U.S. spent $11,000 per person on healthcare, the highest spending amount per capita.
Why does the U.S. spend more on healthcare than other countries? Healthcare costs are based on how many people utilize it and the price of the service. If any of those factors increase, healthcare costs will be a direct correlation to that growth.
My Final Thoughts
Does this substantial healthcare spending help produce greater health outcomes? I believe, NO! I think America's health outcomes are worse than other developed countries. Should we start cutting the prices spent on health and redistribute it to other programs? I think no. I believe how people are treated using this money is the bigger issue. I think how this money is utilized and if it is utilized properly is the problem.
Government debt is at an estimated $23 million dollars. I think there are malfunctions in how the government decides to spend its money. What can be a solution to this overspending crisis? I say, reduce budgets for spending!!! I think as a citizen, that will be a hard reality to execute so as a whole, we need to talk more about government spending. I think education is key!
Resources
Budget Basics: Spending. (n.d.). Retrieved September 18, 2020, from https://www.pgpf.org/finding-solutions/understanding-the-budget/spending
Federal Spending: Where Does the Money Go. (n.d.). Retrieved September 18, 2020, from https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
Reforming Reckless Government Spending. (n.d.). Retrieved September 18, 2020, from https://www.heritage.org/budget-and-spending/heritage-explains/reforming-reckless-government-spending
Government Expenditures [Definition + Examples]. (2020, August 31). Retrieved September 18, 2020, from https://crushthecpaexam.com/accounting-glossary/what-are-government-expenditures/
What are Government Expenditures? - Definition: Meaning: Example. (n.d.). Retrieved September 18, 2020, from https://www.myaccountingcourse.com/accounting-dictionary/government-expenditures
Reforming Reckless Government Spending. (n.d.). Retrieved September 18, 2020, from https://www.heritage.org/budget-and-spending/heritage-explains/reforming-reckless-government-spending
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